A pound does not need a whip, but a carrot

The British pound is losing sensitivity to the news with a political tinge, as evidenced by its striking resistance to the negative. The GBP / USD pair has managed to register the narrowest trading range since February 2016, despite the statement of the chairman of the European Council Donald Trump. The negotiations will lead to a deadlock if Britain does not present the E.U. with a realistic solution of the issue on the Irish border. On Bloomberg, referring to competent sources who wished to remain anonymous, said that some government members believe that a trade deal could not be achieved until January 2019.

Weekly dynamics of GBP / USD pair

Source: Bloomberg.

At present, investors have lost the hope of getting at least some certainty to the outcome of the Brexit talks before the EU summit for the third decade in March. In such conditions, their attention may shift to short-term drivers of GBP / USD pair quotations. Against the backdrop of the almost naked economic calendar for Britain, these events/data should be noted: the importance of data releases on US inflation and retail sales, the development of the situation around the currency wars and the speech of Chancellor of the Treasury, Philip Anthony Hammond. The latter plans to present a plan for the borrowing of the country, which will be characterized by the lowest emissions for the last at least 10 years, according to Bloomberg experts. Theoretically, this should lead to an increase in demand for British bonds in the secondary market, lower yields and short-term weaken the pound. In the medium- and long-term period, the high demand of non-residents for British securities in the face of declining supply is a bullish factor for the GBP / USD pair. However, the interest of foreign investors should be returned.

The uncertainty surrounding the Brexit negotiations should be added to the growing tension within the United Kingdom, wherein Scotland and Wales are willing to live up to the old rules of EU laws, and London has to look for leverage to prevent a repeat of the referendum history of Scottish independence. The outcome may be quite different.

Despite all the troubles of the pound, the consensus forecast of experts in Reuters suggests that after 12 months, it will trade at $ 1.41 due to the weakness of the US dollar and the continuation of the cycle of normalization of the monetary policy BoE. Currently, the futures market feels comfortable with its forecast that the REPO rate will be raised in May, but the decisions of the Bank of England will depend primarily on macroeconomic statistics.

Thus, when Hammond comes out and the release of data on US inflation will be released on Tuesday, it is likely to be an important day to determine the fate of GBP / USD pair. Acceleration of the CPI allows to return the investors’ interest on the monetary restriction of the Fed and provide support to the US dollar.

Technically, the activation of the inverted “Bat” pattern and the exit of quotes outside the downward trading channel will increase the risk of GBP / USD pair quotations rising towards the level of 1.41. On the contrary, the decline of the sterling below $ 1.38 will create the prerequisites for the realization of the Gartley pattern.